Tweed is a licensed producer in Canada that is operating two licenses to grow medical marijuana under the MMPR program. The purpose of this article is to measure the efficiency of Tweed to generate income and how it controls its operating costs and expenses. As I will show Tweed is having difficulty in actually turning a profit. Contrary to the negative financials, I also want to address some observations on Tweeds customer service relations on social media. Tweed has had a series of positive customer reviews from patients under the MMPR that appears to be improving its consumer relationships, but is there an underlying customer service issue?
With that being said lets take a look at how efficient Tweed is at generating revenues. Profitability ratios essentially measure how a company manages its costs and expenses to generate revenues for the company. What often happens is a company will have large increases in sales but their costs and expenses will be out of control.
The reason profitability ratios are important for investors is that it measures the profitability of the company. Investors want their company to perform and generate income that will increase their overall share price. Costs and expenses can undermine a company’s efforts in generating those profits for shareholders.
Looking at the gross profit margin for the nine months ended September 30, 2014. The gross profit margin measures how efficiently the company is using its raw materials, labor and manufacturing fixed assets to generate profits. The higher the margin the better the profit indicator is, the lower the indicator the worst the company is managing its costs.
Gross Profit Margin = 183,754 / 504,353 = .36 or 36%
Tweeds gross profit margin is 36%. In other words the company is making a gross profit margin of 36¢ for every dollar the company brought in sales. The company has a very low gross profit margin, internally it may be experiencing difficulty managing its material, labor and manufacturing costs. Tweed has unacceptable gross margins for it’s industry, and it just isn’t making enough money on its actual revenues. Investors should pressure management to improve these numbers.
Operating profit margin measures managements decisions in its operating expenses and costs of sales. This is a very important if not the most important ratio for investors because it completely reflects positive or negative trends that are directly attributed to the decisions of its management.
Operating Profit Margin = -3,567,810 / 504,353 = -7.07
Tweed’s management has a serious problem with their operating expenses, sales and marketing, research and development, and general and administration expenses. Tweed is losing -$7.07 dollars for every dollar in sales they are bringing in. Tweed’s poor management in their overall operating expenses are hemorrhaging the company’s successful profits from its sales. Their operation expenses are costing the company money which is counter productive to their successes.
Net profit margin measures essentially the company’s bottom line, it measures the company’s profitability. It’s very important for investors to develop a complete systematic analysis of a company’s profit margin to gain a comprehensive view of how successful or even how unsuccessful a company has been generating its revenues.
Net profit margin = -3,430,966 / 504,353 = -6.80
Tweed’s net profit margin is -$6.80, in essence for every dollar in sales that Tweed brings in it is losing $6.80. Costs and expenses are hurting the overall businesses model. Management’s decisions are not only hurting their bottom line but they are also hurting investors pockets. Investors should be concerned that management isn’t taking their margins or investors concerns seriously enough.
While Tweeds management is having a hard time controlling it’s operating costs and expenses, there are some other concerns to note for the
company. Tweed has a very positive social media standing with many 4-5 star ratings from about 85 patients in Canada out of an estimated 800. While on the surface that is impressive for their online social media presence, there is a growing underlying dissatisfaction with their customer service. Tweeds Facebook features 22 dismal one star ratings that should be a growing concern for Tweeds management and customer relations.
There has been a few concerning comments from dissatisfied patients for example, “Tweed started off slowly and then got better and better, than greed set in and they took on more clients than they could service and now for the past month I’ve had absolutely no medicine. Maybe it’s time to go back to morphine and other drugs for my cancer.” Tweed did respond to this individual. However this may underline an internal supply and demand issue. Has Tweed’s management as this customer suggests bitten off more then they can chew?
In an effort to gain some insight into some of the specific MMPR applicants from a knowledgeable professional, MMJ.TODAY recently contacted a professional MMPR consultant by the name of Mr. Georges E. Routhier. Mr Routhier was recently used as a primary source in an in depth Huffington Post article by writer Sunny Freeman in regards to concerns over Health Canada’s MMPR spending, as well as general MMPR applicant related content. Mr. Routhier, is principal MMPR consultant at Pipedreemz, which is an organization touted as a the leading Health Canada Marihauna for Medical Purposes Regulations (MMPR) expert group in Canada. Though we did expect some unique insight, we were a little shocked as to extent and fervency of Mr. Routhier’s position towards Tweed.
“Tweed I use as a Pinyata all the time, have no time for those who waste opportunity and sell garbage. They will be out of money in 11 months.” Said Routhier.
We agreed that the company could be facing some financial trouble and alluded to some specific numbers which would be released in this publication. Although we do believe the company still has some time to address some of their management and profitability concerns. Mr. Routhier has also expressed negative sentiment towards some other producers. Miss Freeman would not respond for comment.
One should also note that Tweed has faced a seized shipment for violating the controlled substances act … As well as violations of advertising policy with respect to narcotics. Perhaps not the best start for this company in such a highly regulated new industry.
In Conclusion
Tweed has a number of potentially devastating profitability issues that investors should concern themselves with, as well as some very concerning industry sentiment. Although Tweed is still a young company, with gross profit margins at only .36¢ on the dollar, a massive negative operating profit margin of -$7.07 and negative bottom line net profit margin of -$6.80, investors should ask themselves in the face of these growing losses that management is placing on current and potential future investors… is it really worth the risk?
Edward Christoff
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Disclaimer: The author has no affiliations with any company mentioned in this article and has not been financially compensated in any way shape or form by the company or it’s competitors.
Your short-sightedness points to the whole problem with stock markets in general. If you look only at a few numbers your assessment appears accurate. However, you need follow the company (and whole mmpr industry) from its beginning to see that their high capital expenditures are/were necessary, and by doing them early on, as Tweed has, they are now in a position that few/no other lps in Canada are. Gross profits weren’t the target for year one, and shouldn’t have been. Building production, ensuring quality, etc. were the targets. As an investor, I feel they’ve done a great job so far, and can’t wait to see how it pans out in the next few years.